Cutting Medicaid Would Devastate Rural Hospitals and Health Centers

The American Health Care Act is quietly reentering the political sphere six weeks after it passed the House of Representatives by an incredibly narrow two-vote margin. While details on the Senate version are scarce (authors of the Senate bill will not release it before the Congressional Budget Office (CBO) scores it), rumors and leaks indicate that it will closely resemble the House version. A recent Star Tribune report highlighted the financial risks that will burden hospitals in Minnesota if AHCA passes. Minnesotan rural hospitals and rural health clinics (RHCs) could face serious budget crises within the next decade, and existential crises in two. It is paramount that certain aspects of the AHCA are eliminated to avoid catastrophic damages to rural communities, but before we get to the looming policy changes, here is some background on the health care systems in Greater Minnesota.

Conservative health care reform proposals tend to include financing massive tax cuts for the wealthy by defunding public health insurance and devaluing insurance policies available on the individual market, group-based market, and employer-based.

The federal government (or the Governor of Minnesota) can designate geographic areas, or subpopulations, as medically underserved in some way. These are broken down into Medically Underserved Areas (MUAs), Medically Underserved Populations (MUPs), and Health Professional Shortage Areas (HPSAs). MUAs and MUPs describe areas or populations that have a shortage of primary care services. A MUA can be as large as a county or as small as a few census tracts, like in the Cedar-Riverside or North Minneapolis neighborhoods. MUPs can consist of the homeless, migrant populations or Native Americans, as well as others; however, in Minnesota these populations are almost exclusively low-income communities. Governor Ventura successfully applied for sections of Stearns County to be granted MUP status, and Governor Pawlenty did the same for Blue Earth and Mille Lacs Counties. A complete list of these areas can be found here, on the Health Resources Services Administration’s website.

The federal government can also designate certain areas as Health Professional Shortage Areas (HPSAs). HPSAs are similar to MUAs and MUPs, but they reflect shortages of medical professionals in an area; MUAs might have a large number of physicians near an underserved area, but those doctors might not accept certain kinds of patients. For instance, many doctors or clinics cap the number of patients on Medical Assistance they see in a year, because those patients’ reimbursement rates are significantly lower than a patient with private insurance (more on this later). HPSAs are endemic in rural America, and Minnesota is no exception. The map below, generated by UDS Mapper, shows where Minnesota’s MUAs and MUPs (in red) and HPSAs (in purple) are located in Greater Minnesota. There clearly is a need for more medical professionals in Greater Minnesota, and thankfully there are a couple programs that help rural health centers and hospitals.

The areas of Minnesota that are medically underserved

Primary care clinics in these medically underserved areas can apply for status as a Federally Qualified Health Center (FQHC) or a Rural Health Center (RHC) if they are outside an urban center. These designations carry their own benefits, but the primary benefits are threefold: first, the clinics become eligible for access to the National Health Service Corps, which helps underserved areas gain and retain physicians, nurse practitioners, physician assistants, certified nurse-midwives, and dentists through loan repayment; second, these clinics are eligible for grants that can pay for a number of services to better serve communities, like patient navigators, additional medical professionals, renovations, and funds to cover changes in professional practice; and third, these clinics can receive better reimbursement rates for Medicare and Medicaid patients to keep these clinics financially viable.

According to the National Rural Health Resource Center, there are 87 RHCs in Minnesota and nearly all of them are attached to a Critical Access Hospital (CAH), which is a small (no larger than 25 beds) hospital in a geographically-isolated rural area. These hospitals rely on Medicare and Medicaid payments, so much so that the state of Minnesota developed a reimbursement plan for Medicare that can immediately pay higher rates than what urban hospitals are paid. Some hospitals even receive a full, 100% reimbursement for Medicare services, essentially making it worth the same as private insurance. The RHCs and FQHCs also can choose between a variety of Medicaid reimbursement systems that work best for them.

For the purposes of this article, we’ll focus on how current conservative health care reform proposals will impact Medicare and Medicaid reimbursements, rural enrollment in public insurance programs, and health outcomes. A recent report published by Georgetown and University of North Carolina researchers found that Minnesota saw impressive gains in Medicaid coverage among rural children and adults as a result of Medicaid expansion and state and local efforts to enroll uninsured Minnesotans. 38% of Greater Minnesota children were enrolled in Medicaid in 2015, up 10% from 2009. The uninsurance rate among Greater Minnesota children dropped to 4% in that time, below the national average and among the best rates in the country. Similar gains were made by adults in Greater Minnesota, with adult enrollment in Medicaid growing by 5% and the adult uninsurance rate dropping to 7%, which is also among the best rates in the country.

Medicare rates in Greater Minnesota were already higher than the state average, with 20% of Minnesotans living outside the seven-county metro area enrolled in Medicare, according to the CMS Medicare Enrollment Dashboard. Overall, 42% of Greater Minnesotans rely on public health insurance (some counties have rates as high as 61%), which means they make up an outsized portion of RHC and CAH patients. These public health insurance programs are vital in keeping Greater Minnesota health systems functional, but policy and tax changes in some proposals would eliminate thousands of rural Minnesotans’ health insurance, both public and private, as well as reduce the long-term viability of Medicare. The result could be a collapse of Minnesota’s rural health systems.

Greater Minnesota, like rural areas of other states, is disproportionately old compared to major metropolitan areas. According to the US Census Bureau, 13.4% of Great Minnesotans are between the ages of 55 and 64 years old, meaning that they will rely on Medicare within the next 10 years, so these clinics and hospitals must plan to see revenues shrink as many of their patients with private insurance will shift to public plans with lower reimbursement rates. This change by itself could be daunting, but most rural health care providers are prepared for that outcome; however, many proposals includes a massive tax cut implemented by the ACA that contributes to the Medicare trust fund. This would make the fund insolvent by 2025, according to Kaiser. Without additional revenues, then, reimbursement rates would have to be cut, or the insurance would be less comprehensive. This would impact all seniors, regardless of where they live, but safety net hospitals, particularly in rural areas, will bear the brunt of this burden. Many seniors could eventually become eligible for Medicaid as well, as fixed incomes could get strained with unexpected costs (a reality many Minnesotans know all too well). These “dual eligible” Minnesotans not only would be able to better afford their health care, but it would increase reimbursements for providers as well, which seems like a great deal, right? According to Vox, the AHCA would freeze Medicaid expansion in 2020 and cut the Medicaid budget by $880 billion over the next 10 years, meaning that after 2019, no newly eligible patients could enroll in Medicaid. This not only harms older Minnesotans, but also the nearly 40% of children in Greater Minnesota who rely on Medicaid. If their household’s income is below 200% of the poverty line, they might be eligible for MinnesotaCare, which is also facing budget cuts, and would require significantly state funding to be a viable alternative. Cuts in Medicaid would impact 50,000 disabled or elderly Greater Minnesotans participating in managed care as well. Again, these clinics and hospitals rely heavily on public insurance for revenues, without which they aren’t viable financially.

Without the prospect of paying those astronomical premiums, and no penalties for leaving the exchanges (a surcharge would be applied to premiums only once someone returns to the marketplace if there is a lapse in coverage), Minnesotans will have to make a dangerous calculus. Can I do without health insurance until Medicare kicks in? It is important to note that the conservative ideas include provisions like waivers permitting pre-existing conditions or removing essential health benefits from insurance plans, which could further harm Minnesotans that are forced out of their health insurance plan. If an older Minnesotan is priced out of health insurance, but starts having breathing problems or painful heart palpitations in relation to a documented history of hypertension and high cholesterol, insurance companies can deny health insurance coverage that includes treatments for those pre-existing conditions (if the Governor of Minnesota applies for a waiver). So not only could the insurance grow in cost, it will also likely not cover the conditions that brought you back in the first place. Some proposals do include means of cost control, but the policy changes aren’t palatable if quality is a main concern. Methods like reducing the actuarial value of the insurance would drop the premium, but raise the deductible. Changes to essential health benefits could theoretically reduce premiums, but again, the value of the health insurance could also drop.

Some conservative plans could drive sicker Minnesotans to wait until their symptoms are so unbearable that they visit an emergency department and hope it won’t bankrupt them or buy insurance policies even if it means spending retirement savings, college funds, Social Security funds, or even refinancing homes to do so. They could hope that these hospitals provide that care for free or drastically reduced costs, but the mechanism hospitals use for uncompensated care (or charity care), isn’t funded nearly enough to handle an influx of 23 million Americans. In fact, these Disproportionate Share Hospital (DSH) payments were meant to be phased out with the expansion of Medicaid because theoretically almost all Americans would be eligible for health insurance. Cuts to DSH payments were delayed several times because several states never expanded Medicaid, but the law currently states for DSH payments will phase out by 2027, per Kaiser.

This is all to say that conservative health care ideas could create an incredibly dire health care environment in Greater Minnesota. A sudden spike in uninsurance rates will make Minnesotans of all ages unhealthier, and rural health care providers will strain to stay open. The consequences of these propoasls can’t be overstated: If some of these ideas are adopted, Greater Minnesota could be devastated. Thousands of Greater Minnesota children, seniors, disabled people, and workers could lose their health insurance with no chance of replacing it. These ideas could also decimate the financial system propping up rural hospitals and clinics, and the result could be thousands of lost jobs.

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North Star Policy Institute is a progressive think tank that advances awareness and discussion about state-level public policies. We produce original research, articles, reports, and commentaries that center the priorities of Minnesota’s working people and families.